Budget 2024: Increase in R&D tax credit essential in ensuring Ireland remains competitive for FDI

10 October 2023.

The “Pillar Two” 15 per cent minimum corporation tax rate applicable from 31 December 2023 will to some degree level the playing field with other competitor countries in terms of attracting Foreign Direct Investment (FDI). However, there are many reasons other than tax that make Ireland an attractive location for FDI, such as an English-speaking population, an educated workforce, membership of the EU and favourable business conditions.

That said, to ensure that Ireland remains a competitive location in which to invest and grow businesses both from the perspective of inward investment and domestic indigenous growth, other areas of the Irish tax system and Irish economy in general must be adequately served.

Commenting on the increase of the research and development tax credit (R&D tax credit) to 30%, Caroline O’Driscoll, Tax Partner, Deloitte Ireland said: “The impact of the Pillar Two minimum effective tax rate on large multinational companies would otherwise have resulted in a net reduction in the value of the tax credit for the claimant companies. This is because the credit value will be treated as income and therefore becomes subject to the minimum tax. Today’s announcement restores the effective benefit for companies carrying out qualifying R&D. This tax credit is essential in ensuring Ireland remains competitive from a FDI perspective and to ensure those who have already invested can deliver on their planned business model, which is why the announcement today is welcome.”

While there was no immediate reform to Ireland’s interest deductibility regime, the Minister did signal his commitment to engaging with stakeholders. O’Driscoll commented: “In comparison with our competitors, Ireland’s interest deductibility rules are complex, cumbersome and need urgent reform. It is welcome that the Minister has committed to this engagement, and it is a positive indication of reform. We would welcome consultation in the near future to ensure businesses get the support they need to reduce the administrative burden.”

Prior to the budget, the Minister published a roadmap for the introduction of a participation exemption for dividends. O’Driscoll commented: “The publication of the plan for the introduction of a participation exemptions for dividends is welcome in terms of the simplification agenda, although it is disappointing that it does not coincide with the introduction of the complex and technical Pillar Two rules.”

For further information contact:
Martin Phelan
Murray
mphelan@murraygroup.ie
087 246 7106

Declan Jackson
Deloitte
dejackson@deloitte.ie
086 864 3770